Nifty, Sensex hit record high as FIIs rush to shining India

Equity benchmarks surged to record highs Tuesday among growing perception that India is the best placed among emerging markets because of its improving macro economic fundamentals.

The 30-share Sensex hit a new peak of 28829.29, before closing at 28784.67, up 522.66 points or 1.85 percent over its previous close.

The 50-share Nifty closed at 8695.60, up 144.90 points or 1.69 percent after hitting a new high of 8,707.90 intraday. The broader markets underperformed benchmarks with BSE Midcap and Smallcap indices rising 0.4 percent each.

“(Have) witnessed a heightened interest from global funds which are yet significantly under positioned in India,” said brokerage house CLSA in a note to clients, terming India as its favourite emerging market.

The International Monetary Fund today said India’s growth rate would surpass that of China in 2016, but said that implementation of reforms would be key.

The frenzied buying in Indian equities comes despite a tepid quarterly earnings season so far and increasing nervousness in global markets because of the oil rout and elections in Greece.

Also, some market experts have warned that valuations are no longer cheap, and big upsides were unlikely till corporate earnings showed a marked improvement.

For the time being, global investors do not seem to mind assigning premium valuations to India as they feel it is a safe haven compared to other markets.

The IMF cut its global growth forecast for 2015-16, warning that gains from cheaper crude would be offset by dimmer economic prospects for China, Russia, the euro area, Japan and oil producer.

China today reported a GDP growth of 7.3 percent for the December quarter, its slowest in 6 years.

“The challenges imposed by weaker demographics, high debt and deflationary pressures are most keenly felt in China, Hong Kong, Korea, Singapore, Taiwan and Thailand,” said a Morgan Stanley report to clients.

“In contrast, India, the Philippines and Indonesia are not facing challenges on this front,” the report said.

Despite the euphoria, many players have called for restraint saying the economic recovery could be slower than what the market is expecting.

“Valuations are no longer in the cheap territory; they are not absurdly rich, but further PE multiple expansions from these levels immediately is a bit hard to see,” Vetri Subramanium, Chief Investment Officer, Religare Invesco Mutual Fund told CNBC-TV18 in an interview.

“Underlying growth trends are still very weak and honestly; when you talk about 16-17 percent consensus earnings growth for the market in 2016, the underlying premise is that there will be some pick up in revenue growth,” he said.